Sellers make a huge mistake by deciding to sell their business on their own. They can also make a huge mistake in choosing the wrong business broker to handle the sale of their business.
When you choose to hire a business broker to sell your business, you’ve made a very good and sound decision. However, as in any industry made up of people, there are good and bad business brokers. You need to make sure you are choosing a great business broker with tremendous experience to handle the sale of your business. Great business brokers can maximize value in the sale of your business. A bad business broker will cause your business to stay on the market too long and will not maximize value and cost you money.
Here are twenty questions that you should ask when interviewing business brokers:
1. How many years have you been selling businesses?
It is imperative to hire a business broker or business brokerage firm that has years of experience in selling businesses. Some business brokerage firms will have agents that might not have as many years of experience. However, if that agent works for a business broker that has years of experience in selling businesses, then interview that owner to make sure that the owner will be working with the agent during the entire process of selling your business. If the owner of the firm does not have very much experience in selling businesses, then do not hire that firm.
2. How long have you been with or owned your firm?
You should ask the agent how long they have been with the firm. That will provide you with further insight regarding the agent’s experience level.
3. Do you work from home or have an office?
There is nothing wrong with hiring an agent or broker that works from home. Although, why are they working from home? Is it because they are new in the industry and cannot afford an office? Or have they been in the business for years and are scaling back?
4. How many brokerage offices do you have or are you affiliated with?
This is a very important question to ask as well. Not all brokers will agree to co-broker on the sale of your business. So if they don’t co-broker, are they part of a national business broker’s alliance, and therefore, can co-broker within their own organization?
5. How many businesses have you sold?
The more businesses they have sold, the more experience they will have at putting deals together. Be very careful of hiring a broker that has not sold very many businesses. There is a reason they have not sold many businesses, and you do not want them to practice on selling your business.
6. How many businesses do you sell a year?
The average business broker will sell eight to ten businesses a year. If they only sell one or two is it because they sell larger businesses or is it because they are not motivated to sell more or not good enough at selling more businesses per year? Which is it? The answer will be important in making your decision.
7. What industries have you sold businesses in?
If you are selling a multi-million dollar car dealership and the business broker does not have any experience in selling car dealerships, then you could run into problems throughout the process. It is not imperative for the broker to have industry experience; however, it is very helpful in maximizing values and ensuring a smooth transition.
8. How many listings do you have?
The average business broker will have 15-20 listings at any given time. If they have less than the average, it might be important to know why they have fewer listing than other brokers. Is it because they are not motivated to obtain more listings? Are they new and that is why they don’t have more listings? Is it because they are not good at obtaining listings? Or are they good at selling their listings and that is why they have fewer listings? Some sellers are concerned that a broker may have too many listings. That is never an issue as long as the broker has an administrative assistant and a good support staff in place. Therefore, you should ask the broker if they have support.
9. Do you co-broker?
If the broker does not agree to co-broker (and many of them don’t) then your buying pool will be limited to that brokerage firm only or their affiliated offices. I would suggest that you keep interviewing and hire a business brokerage firm that does co-broker. The broker should have a fiduciary duty to their seller to sell their business in the quickest amount of time as possible for the highest possible price. They should not have a fiduciary duty to their bank account!
10. Do you have a database of buyers? If so, how many?
Most business brokerage firms do not utilize a contact management system properly. They attempt to keep a paper trail of signed NDAs and notebooks. They do not have a proper system in which to sort and maintain buyers. You should hire a business brokerage firm that has a database of buyers. Professional, experienced business brokers will run a query of all their buyers in their buyer databases that could be a good fit for your business. If the broker has a buyer database, then they could actually sell your business much quicker than a broker that does not have a database of buyers in a contact management software program. These brokers will have to sort through paper to find a buyer or start from scratch and advertise for buyers.
11. Do you have testimonials?
Any professional, experienced business broker should have testimonials and references that you should be able to call. However, please keep in mind that all business sales are confidential and a business broker cannot disclose the information on any sold businesses without the seller’s permission.
12. What is your closing ratio?
Many close less than 40 percent of all offers they write. Those are horrible odds and statistics. These odds are no better than trying to sell the business on your own.
13. How do you evaluate what my business is worth?
Unfortunately there are a lot of order takers out there versus professional business brokers. Professional, experienced business brokers will not take the listing if the seller’s expectations are not in line with the broker’s valuation. Order takers will ask the seller what they want for the business and the broker will write up the listing with the seller’s dream price without running numbers, pulling industry standards, looking at business comps, and properly valuating the business for what it is actually worth.
14. What resources will you utilize to valuate my business?
Ask them if they will show you industry standards on your particular industry and business comps to support their valuation.
15. Do you assist with creative financing?
Let’s face it; we are living in a whole new era. Due to the recession and financial debacle, banks are not lending unless the perfect storm has occurred. The perfect storm means that the seller has to have perfect books and records, the buyer has to have near perfect credit, twenty-five percent down, collateral to secure the loan, and industry experience. Typical financing is not so typical anymore, and deals are not getting done the old-fashioned way. Therefore, you need to hire a business broker that understands this and has experience in creative financing. Otherwise your business is not going to sell.
16. What marketing material will you provide to prospective buyers on my business?
This is a key step as well. Most business brokers do not create an offering memorandum on your business. Most of them do not write any paper except for the listing that goes on the Internet. Some will write a one page BLI (business listing information) sheet; very few brokers actually put together a full prospectus. It is imperative to utilize a business broker that will write complete prospectuses on your business.
17. How and to whom will you market my business?
You need to make sure that you choose a business broker that puts together a creative marketing plan. Most brokers will stick the listing up on mutable websites and that is the extent of their marketing. You need to select a broker that has a buyer database, and does strategic marketing, not just Internet marketing.19. How do you qualify buyers?
I have seen many brokers not qualify buyers. The buyer signs an NDA and the broker gives them information, including financials on your business, without ever qualifying the buyer. If the buyer is not willing to provide his/her financials and you have no other way to verify their financials, then the broker should not provide the buyer with any information whatsoever on our seller’s business.
20. Do you have relationships with lenders, attorneys, and tax specialists?
Deciding to sell your business can be the most important financial decision you will ever make. Hire a professional, experienced business brokerage firm and perform your due diligence before doing so.
Michelle Seiler-Tucker is the author of Sell Your Business for More Than It’s Worth. She has owned and operated eight successful businesses. In addition, she is founding partner of Capital Business Consultants Franchise as well as Founder/President of Capital Business Solutions, Better Business Brokers, The Business Doctors and Advanced Medical Rehab. www.sellyourbusinessformorethanitsworth.com and www.betterbusinessbrokers.com.
Current Issue - May 2024